Coop Chamber warns against OECD proposal to scrap VAT exemptions

By Mariela Angella Oladive

The Philippine Chamber of Cooperatives on Thursday urged the government and Congress to exercise caution over a proposal by the Organisation for Economic Co-operation and Development to phase out value-added tax exemptions for cooperatives and key social services.

The OECD last week recommended phasing out VAT exemptions for senior citizens, private health care and education to help reduce public debt and narrow the budget deficit.

The Philippines imposes a 12% VAT on goods and services, but senior citizens are exempt under Republic Act No. 9994, or the Expanded Senior Citizens Act of 2010. Private health care and educational institutions also benefit from tax breaks under existing laws.

In a statement dated Feb. 19, the group acknowledged the OECD’s recent economic surveillance report and recognized its role in promoting fiscal sustainability. It said it shares the government’s objective of strengthening the country’s revenue base for national development.

However, the chamber raised concern over the recommendation to remove VAT exemptions.

“While ‘broadening the tax base’ is a sound theoretical principle, its application must be tempered by the developmental context of the Philippines,” the group said.

The OECD proposed replacing tax exemptions with targeted direct subsidies to improve efficiency. While the chamber said it does not oppose the approach in principle, it stressed that operational realities in the country must be considered.

“In the Philippines, where social transfer mechanisms are still being modernized, the current VAT exemption functions as the most immediate and effective subsidy for the vulnerable,” it said.

The group noted that VAT exemptions provide instant relief at the point of sale for senior citizens, students and patients. It warned that removing the exemption without a fully operational direct subsidy system in place would eliminate an existing safety net.

The chamber also cautioned against categorizing cooperative tax privileges as “fiscal incentives” that require rationalization, emphasizing that cooperatives are distinct from profit-oriented corporations.

“Cooperatives are social justice enterprises mandated by the Constitution to foster self-reliance among the marginalized,” it stressed, adding that surplus earnings are returned to members to support their livelihood.

It argued that treating such surplus as taxable corporate income would undermine financial inclusion efforts that the state seeks to promote.

The group further pointed out that the OECD champions “Inclusive Growth” and the “Social and Solidarity Economy.” It said fiscal policy should be harmonized with these broader goals.

“Removing tax exemptions for cooperatives and essential social services would increase the cost of living, potentially widening the inequality gap. We believe that true efficiency lies not just in revenue numbers, but in the well-being of the citizenry,” it added.

The chamber called on the Department of Finance and lawmakers to adopt a nuanced approach to the recommendations and to protect the tax status of cooperatives and VAT exemptions for senior citizens, education and health care.

The OECD is a Paris-based intergovernmental organization of 38 member countries that provides policy recommendations to promote economic growth and global trade. The Philippines is not a member but has been engaging with the body as part of broader economic reform efforts.